Mobicred acquisition enlarges RCS footprint

Adds 4 000 new stores to the 28 000 that already accept RCS cards.
RCS has essentially bought a lot of credit-hungry online shoppers. Image: Shutterstock

Retail credit provider RCS Group, owned by the French bank BNP Paribas, has hardly had time to digest the acquisition of the large Edcon loan book before making another acquisition. It announced on Monday that it has acquired online payment and credit provider Mobicred for an undisclosed amount.

RCS CEO Regan Adams says the acquisition of Mobicred was the natural next step in the group’s digital transformation strategy and complements its existing product offering perfectly.

By acquiring Mobicred, RCS is essentially buying a lot of credit-hungry online shoppers to add to its flock of RCS account holders who are still mostly shopping in malls, although most stores offer online shopping.

Scant detail

Unfortunately, the parties to the transaction did not disclose the purchase price, nor how many clients Mobicred has or the size of its loan book. The formal announcement of the transaction and additional information only states that shoppers can use Mobicred to pay at around 4 000 online shops.

These include some of the biggest retailers in SA, such as Game, Takealot, iStore, Incredible Connection, bidorbuy, Superbalist, Hifi Corporation, Sportsmans Warehouse, Dis-Chem, Clicks and Tekkie Town. Mobicred clients can basically buy anything online.

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RCS cards are accepted in 28 000 shops. This includes most of SA’s fashion and clothing retailers.

RCS has 2.7 million active clients following the acquisition of the Edcon loan book effective from the beginning of 2020.

RCS says in a discussion of the Mobicred acquisition that it is in alignment with its drive towards financial inclusion in SA, while its website says that the group’s core purpose is to enhance people’s lifestyles through innovative and accessible credit financial solutions.

“South African youth are the fastest-growing group of online shoppers in the country and providing this group of digital natives with access to credit is imperative,” says Adams.

“Our acquisition of Mobicred enables us to better serve the needs of South African consumers who require a more diverse suite of credit solutions to help them access and manage their purchases. The acquisition of Mobicred was the natural next step in RCS’s digital transformation strategy and complements our existing offering perfectly, as we enable our customers to shift towards shopping across their chosen channels – be it in-store or online.”

Demand for credit is high

Mobicred founder and CEO Jason Sive says Mobicred has grown by 70% per annum since its start in 2013.

“The business was founded on the idea that credit should be easily accessible in the online retail environment in the same way that it is available in the physical store environment.

“Soon after launching the business, customer behaviour immediately validated the demand for alternative payment types and the rapid growth in our customer base has helped the business achieve 70% year-on-year growth,” says Sive.

“We’ve been able to address a significant pain point for the South African market in which the demand for an alternative to traditional credit cards has increased exponentially over the last few years.”

Figures

Looking at RCS Group’s figures shows that financial inclusion and enhancing people’s lifestyles by providing credit-card type loans is highly profitable. Luckily, RCS’s annual report is readily available as BNP Paribas has listed several corporate bonds on the JSE.

Adams says in his commentary in the annual report for the year to end December 2020 that RCS’s book increased to R12.7 billion at the end of December 2020, while the balance sheet showed an amount of R11.6 billion. According to the accounting policies, the difference is mostly due to provisions for bad debt.

The financial statements show that RCS is usually a very profitable business, though this was not the case in 2020. Dogged by lockdowns, profit after tax fell to R56.9 million – the result of increasing provisions for bad debt from below R900 million in 2019 to R2.2 billion in 2020.

In the “normal” financial year to end 2019, profit after tax exceeded R472 million and return on equity exceeded 15%.

The business seems simple from the outside …

BNP Paribas funds RCS by issuing corporate bonds and lends the money out at high interest rates. It tries to keep costs and assets low, and tries to manage the bad debt as best it can.

In 2020, RCS earned interest income of more than R3 billion and paid just less than R650 million in interest to bondholders and other suppliers of funding, while earning another R1.2 billion in fees and other non-interest income.

Like a normal bank, RCS charges a monthly account fee and sometimes a transaction fee. Its division offering unsecured loans also charges an initiation fee. This non-interest revenue covers most of the operating costs.

As for assets, RCS has very few. The balance sheet shows tangible assets of only R85 million.

Pedal to the metal

RCS believes the acquisition of Mobicred will accelerate its growth into the e-commerce ecosystem by adding new and bespoke brands to its already well-established shopping network.

“The acquisition also allows the group to tap into new customer segments, with a particular focus on Gen Zs and Millennials – the biggest proponents of online sales in South Africa,” says Adams.

“As part of the global BNP Paribas group, we are constantly looking for innovative technologies to enhance the customer experience and to bolster our engagements. It is important to stay abreast of new fintech developments and to integrate innovation into every touchpoint in our business.

“Our core focus is to bring the best of both worlds together, marrying our physical store footprint with our digital capabilities to create synergies within the retail environment.”

Adams adds that consumers’ finance needs will be met wherever they are, either physically in store or digitally wherever they are, day or night.

He says consumers will have a more diverse product range at their fingertips, enabling them to choose what suits their specific requirements.

Studies have shown that SA is still far behind the rest of the word in terms of online shopping, but the trend towards its adoption is accelerating, partly due to Covid-19, which has introduced many consumers to virtual shopping malls.

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